Module 04
Capacity Management & Planning
How do we plan and optimize our operations to meet the demands and expectations of the customer.
This Week
Learn. Practice. Apply.
Week 04
Sep 15-20
01
Before Class
Prepare
Chapters 10 + 14
Complete the assigned readings and multimedia before the live session.
02
Tuesday · Sep 15
6:00-7:20 PM
Online Lecture
Capacity, constraints, and resource planning.
03
Saturday · Sep 19
1:00-3:50 PM
Saturday Online Session
Apply capacity and resource planning concepts through guided analysis and discussion.
04
Sep 19
11:59 PM
Case Study 2 Due
Submit your team's second case-study deliverable.
05
Sunday · Sep 20
11:59 PM
Homework 3: Capacity and Resource Management
Practice the capacity, constraints, and resource-planning concepts introduced this week.
Course Roadmap
Each module moves one step closer to planning and running the operation.
Module 4 is where forecasts become capacity, constraints, resource choices, and operating plans.
Course Orientation
Operations as the system that creates value.
Supply Chain Design
Where work should happen and how flow is designed.
Forecasting
What demand might customers bring to the system?
Capacity Management & Planning
How much can we deliver, and how should resources be deployed?
Tuesday Session
Interactive discussion lecture
80 minutes
How much business can our operation actually handle?
0-5
Restaurant COO cold open
5-12
What is capacity + focused factory
12-22
Theoretical, effective, safety capacity
22-35
Work-order load + capacity simulator
35-48
Bottlenecks + Theory of Constraints
48-58
Long-term capacity strategies
58-68
Short-term capacity levers
68-76
Learning curves
76-80
Bridge to Saturday
Cold Open
Tonight you are the COO of a busy full-service restaurant.
Before we name formulas, ground the problem: what does the restaurant do, what is its capacity, what resources make that capacity real, and how do you manage the gaps?
Guest-facing capacity: tables turned, guests seated, service quality, and wait times.
Throughput capacity: tickets completed per hour, station bottlenecks, and food quality.
Managers allocate scarce resources across FoH and BoH so the whole restaurant delivers.
Discuss
Where does the restaurant fail first on a Friday night rush?
Hint: Name the output, the scarce resource, and one FoH vs BoH tradeoff.
LO 10.1 · Concept
Capacity is the rate of output per unit of time — or the units of resource availability that make that output possible.
Managers measure capacity as output (customers, units, tickets) or as resources (hours, seats, machines). Either way, capacity is the boundary between what demand wants and what operations can deliver.
Customers served per hour, loan applications per day, orders shipped per week.
Labor hours, machine hours, beds, seats, trucks, servers, or specialist time.
Capacity is the boundary between what demand wants and what operations can deliver.
Predict
Capacity is measured differently depending on what creates value and what limits flow.
Capacity Decisions
Bigger can lower cost, until size creates complexity.
Capacity decisions are shaped by the cost curve. At first, more volume spreads fixed cost and improves learning. Past a point, complexity, congestion, and coordination costs can push unit cost back up.
Economies of scale
Average unit cost decreases as capacity or throughput increases.
Diseconomies of scale
Average unit cost increases when the operation becomes too large or unfocused.
Managerial question
Where is the useful capacity range before complexity starts winning?
Capacity Problem Structure
Capacity is fixed for a period, but demand moves.
First see the capacity promise, then demand variation, then the pressure points managers must plan around.
LO 10.2 · Coffee Shop Example
Theoretical capacity is rarely the number managers should promise.
Eq 10.1 · Theoretical capacity = Effective capacity + Safety capacity
Maximum rate under ideal conditions: 2 machines x 30 drinks/hour x 8 hours.
What managers can reasonably expect under normal conditions after breaks, cleaning, and variation.
Capacity reserved for surges, shortages, and breakdowns. Eq 10.1: Theoretical = Effective + Safety.
LO 10.1 · Focused Factory
As a facility adds products and priorities, it can grow large and unfocused.
The focused factory idea is divide and conquer: smaller facilities dedicated to a few products, a technology, a process capability, a competitive priority, or a market segment.
A kitchen that tries to be fine dining, high-volume takeout, and catering at once is most at risk of what?
Predict
A consumer-loan division receives 200 applications per day. Each takes 20 minutes. Each officer has 7 productive hours.
Commit to a staffing estimate before the formula appears.
How many loan officers are required?
LO 10.2 · Eq 10.2 / 10.3
Work-order capacity is setup plus processing load.
Cᵢ = Sᵢ + (Pᵢ × Qᵢ)
ΣCᵢ = Σ [Sᵢ + (Pᵢ × Qᵢ)]
Sᵢ is setup/changeover time, Pᵢ is processing time per unit, and Qᵢ is order quantity. Total capacity required is the sum across work orders.
Formula Pattern
Work order A: S=2 hr, P=0.5 hr, Q=10 → C=2+(0.5×10)=7 hr
Work order B: S=1 hr, P=0.25 hr, Q=20 → C=1+(0.25×20)=6 hr
Total ΣCᵢ = 7 + 6 = 13 hr
Hint: Use C = S + (P × Q). Answer with the number of hours.
Try It
Change demand, processing time, hours, and staffing.
Watch the gap move immediately. Capacity decisions become easier when the constraint is visible.
Applications/hour
3.0
Capacity/employee
21.0
Total capacity
210
Required employees
10
Demand vs. capacity
+10 applications
Capacity is sufficient under these assumptions.
Predict
A four-step lending process has station capacities of 30, 25, 12, and 40 applications per hour.
The capacity of the system is not the average. It is governed by the slowest required step.
Intake
30
Capacity/hr
Review
25
Capacity/hr
Approval
12
Constraint
Funding
40
Capacity/hr
What is the capacity of the entire system?
Management Decision
Which investment creates more system throughput?
Option A increases Intake from 30 to 50 per hour. Option B increases Approval from 12 to 20 per hour. Throughput is governed by the constraint.
Which option should management prefer?
LO 10.3 · Strategy
If demand will grow for three years, capacity timing becomes a strategic CapEx bet.
Quick Debate
Which strategy fits a seasonal retailer best — and why?
LO 10.4 · Short-Term Levers
Demand and capacity do not match. Do we change the operation, or change demand?
Short-term capacity management is usually not one big fix. It is a set of small levers managers pull to reduce waits, protect service, and avoid waste.
Add overtime, call float staff, cross-train people, reassign work, or speed up the bottleneck.
Use appointments, reservations, off-peak discounts, peak pricing, or clearer wait-time information.
Friday night restaurant demand jumps 40% above average. What should the manager try first?
Manager Choice
Which lever family fits each situation?
LO 10.5 · Learning Curves
If the same team repeats the same work, capacity can grow without adding people.
Learning curves matter because capacity is not always fixed. People, teams, and processes often become faster with repetition.
People ask more questions, make more mistakes, and move slowly.
Fewer mistakes and smoother handoffs reduce time per unit.
The same team can handle more work with the same hours.
The formal term
A p-percent learning curve means that each time cumulative experience doubles, the time per unit drops to p percent of the previous time.
Formula Pattern
If unit 10 takes 50 minutes...
and the team follows an 80% learning curve...
then unit 20 takes about 40 minutes.
Common example
80%
What doubles
Experience
What falls
Time/unit
Hint: 80% of 50.
New work often starts slow
Repetition can increase capacity
Staffing plans should account for learning
Budgets should improve as the process stabilizes
Bridge
Tonight we sized capacity and found constraints. Saturday we deploy resources.
We cannot rebuild the operation every time demand changes. Saturday asks how to schedule people, produce units, build inventory, use overtime, and respond when the plan breaks.
Check Your Knowledge 10.1
Quick check: capacity, scale, and planning.
Which statement about diseconomies of scale is true?
For operations planning, capacity needs must be translated into what?
Saturday Session
COO lab: make the plan, then defend it
155 minutes
Given demand, capacity, and costs, how should we deploy resources — and what tradeoff would you defend to a boss?
0-10
COO / restaurant frame
10-18
Big plan → specifics → run the week
18-28
Levers managers pull
28-48
Excel Lab 1: workload
48-65
Excel Lab 2: level + inventory story
65-80
Excel Lab 3: chase
80-85
Break
85-95
Defend level vs chase vs mixed
95-118
Group plan + shock
118-128
Boardroom recommendation
128-140
Solver as second opinion
140-148
From monthly plan to next week
148-155
Project connection + wrap
COO / Restaurant Frame
FoH and BoH are different capacity stories — plan for both.
Front of House is seats, servers, hosts, and wait times. Back of House is tickets, stations, prep, and equipment. Shared resources — people, time, space, cash — force tradeoffs across both.
Guest-facing capacity: tables turned, guests seated, service quality, and wait times.
Throughput capacity: tickets completed per hour, station bottlenecks, and food quality.
Managers allocate scarce resources across FoH and BoH so the whole restaurant delivers.
Hint: Think seasons and staffing shape — not Excel jargon.
Hint: Turns the season plan into shifts, stations, and product families.
Hint: Who works, what gets prepped, what gets ordered this week.
Managerial Ladder
Three decisions, three time horizons — not three textbook labels.
1–2 years / seasons
Big picture
How much capacity and what staffing shape do we want across the season? (Aggregate plan = the big staffing/production picture.)
Months → weeks
Break into specifics
Turn that picture into product families, station hours, and who works which shifts. (Disaggregate = make the plan specific enough to staff.)
This week / today
Run the week
Who is on the floor, what gets prepped, what gets ordered. (Execute = make Tuesday’s service actually happen.)
Levers Managers Actually Pull
Before the spreadsheet: which decision are you making?
Every lever accepts a tradeoff on cost, service, culture, or risk. Name the lever, then defend it.
Move demand earlier/later or away from the peak. Tradeoff: margin and brand vs. smoother load.
Flex hours without changing headcount permanently. Tradeoff: labor cost and fatigue vs. flexibility.
Reset regular capacity. Tradeoff: culture, training, and switching cost vs. matching demand.
Store product (or tickets) across time. Tradeoff: holding cost and spoilage vs. lost sales and service risk.
Rare and expensive for a restaurant. Tradeoff: CapEx and idle capacity vs. long-run throughput.
Demand Spike
Valentine’s / graduation weekend demand jumps 40% for three weeks. Which lever do you pull first — and why?
Hint: Decision + tradeoff + one boss sentence.
Build the Workload Model
Workbook tab: 02_Workload. Calculate capacity required before deciding how to fix the shortage. Then say the gap in words a boss understands.
Formula Pattern
Workload = Setup + (Quantity x Processing)
Capacity gap = Available capacity - Required capacity
Negative gap = shortage
Try It
Your workload model shows a capacity shortage. Which lever would you test first — and what tradeoff are you accepting?
Use Inventory to Store Capacity
Workbook tab: 03_Level. Hold production constant and let inventory absorb demand variation.
Demand vs. production
Level
Story First
Ending stock is what you had, plus what you made, minus what you sold.
That story is the inventory bridge between months. Workforce is the same idea for people: how many people do we need to make this period’s plan, and do we hire or release to get there?
Formula Pattern
Ending inventory = Beginning inventory + Production − Demand
People needed ≈ Production ÷ output per person
Hires / layoffs = bridge from last period’s headcount to this period’s need
Hint: Say it like a floor manager, not a textbook.
Model Consequences
Cost makes the level strategy a management decision, not just a smooth line.
Level production
1033/mo
Ending inventory
-2
Cost categories
2
Formula Pattern
Production cost = Production x Unit production cost
Inventory cost = Ending inventory x Holding cost
Total level cost = Production cost + Inventory cost
Match Production to Demand
Workbook tab: 04_Chase. Production follows demand, but workforce and operating stability become the issue.
Demand vs. production
Chase
Defend Your Choice
Level, chase, or mixed — which would you defend?
Mixed / lowest-cost plan is what the spreadsheet can search for when you allow several levers at once. Cheapest on paper is still a judgment call for people and service.
Dimension
Level
Chase
Mixed
Production stability
High
Low
Tuned
Inventory
Higher
Lower
As needed
Workforce / culture
Stable team
Hire/fire churn
Limited churn
Service responsiveness
Slower to surge
Tracks demand
Balanced
Cost story
Holding cost
Changeover cost
What the sheet can search
Hint: Name the setting (restaurant vs factory), the plan, and one tradeoff on service, cost, or culture.
Break
5 Minute Break
5:00
Mission
Meet all customer demand at the lowest feasible total cost.
Group Roles
Make the tradeoffs visible by assigning ownership.
Synthesizes the plan and makes the final tradeoff.
Watches feasibility, overtime, and bottlenecks.
Calculates costs and challenges expensive assumptions.
Challenges plans that create stockouts or service failures.
Deliverable
Each team must produce a feasible operating plan and defend the tradeoff.
Production by month
Inventory by month
Overtime usage
Any subcontracting
Total cost
Overall strategy
Name which levers you used and the main tradeoff you accepted
Biggest operational risk
Breaking News
Your operating assumptions just changed.
Next month's production capacity falls 25%.
Next month's demand increases 30%.
Maximum overtime capacity is reduced by 50%.
Raw-material production costs increase significantly next quarter.
Present
Lowest-cost feasible plan wins.
Team
Strategy
Cost
Service Met?
Team 1
Hybrid
$
Yes
Team 2
Level
$
Yes
Team 3
Chase
$
Yes
What Are We Asking the Model?
Solver is a second opinion after YOUR plan — not the plan itself.
In plain language we ask: minimize total cost; don’t go negative on inventory; have enough people for the plan; hit the ending stock target; don’t exceed capacity.
Variables (in words)
- How much to make each period
- How many people to hire each period
- How many people to release each period
Rules we refuse to break
- Inventory cannot go negative
- Headcount must cover the production plan
- Ending stock target must be hit
- Capacity ceilings cannot be exceeded
Solver Reveal
Solver is a second opinion after your plan — cheapest is not always best for people or service.
Level plan cost
$
Chase plan cost
$
Best student plan
$
Solver minimum cost
$
Handoff
The monthly plan still must become who makes what this week.
That handoff is where plans break: a smooth season chart does not seat Friday’s guests or stock the walk-in. Finished-goods (or service) schedules imply parts and supplies — conceptually, the week’s work and the week’s orders.
From the month
Production / staffing shape
Level, chase, or mixed told you how hard to run and how much buffer to carry.
Into the week
Who, what, and what to order
Station schedules, prep lists, and supply needs follow from the finished plan — without turning today into a field glossary.
Hint: Name one handoff that usually breaks (staffing, prep, suppliers).
Workbook
One workbook should carry the whole module from capacity to optimization.
01_Capacity
Consumer-loan capacity calculator
02_Workload
Work-order capacity model
03_Level
Aggregate level-production plan
04_Chase
Chase-demand model
05_Group_Challenge
Student decision model
06_Solver
Minimum-cost optimization model
Hint: Name the constraint, how you would measure it, one planning lever, and one risk.
Takeaway
Pick a plan, name the tradeoff, and be ready to tell a boss why — then check the model as a second opinion.
Decision
What am I choosing?
Tradeoff
What am I accepting?
Boss line
One sentence that defends it
Levers
Demand, rate, people, inventory, facilities
Handoff
Monthly plan still must become next week